Stuy Town’s Best Hope Lies With Its Tenants


Selling Stuyvesant Town/Peter Cooper Village to a partnership between the complex’s tenants and Brookfield Asset Management would likely offer the best returns to the holders of the troubled property’s first mortgage, according to a new report by JPMorgan Securities, which went on to note that any deal is likely at least a year away. The report added that selling the complex to the partnership was the most likely outcome for the property, which has been in limbo since 2009 because of a foreclosure and lawsuits.

Late last year, the partnership stated it wanted to buy the rent-regulated complex, which has been in foreclosure since early 2010, and turn it into an affordable condominium. No definitive plan was offered at the time, but the partnership pledged that during the conversion no one would be evicted from the complex, which stretches along the East River from East 14th to East 23rd streets. Still, other potential buyers would most likely be deterred by the challenges and limited financial returns associated with running the enormous rent-regulated complex with 11,000 units, according to the report.
The report said that a 2011 appraisal valued the property at $3 billion, but added that the figure seemed “aggressive” if the complex were still to be run as a rental building where revenue would only increase substantially as units are deregulated. On the other hand, the report estimated that a partial condo conversion could bring in as much as $4.4 billion. Holders of the senior mortgage are owed $3 billion. Another $1.4 billion is owned to the holders of the mezzanine debt.

The question remains on whether the mezzanine debt has a claim on any gain-on-sale proceeds, the report indicated. Yet, it added that the condo conversion “could in principle result in a purchase price significantly in excess of the outstanding first mortgage balance.”

The fate of the rent-regulated complex has been up in the air since late 2009 when the then owner, a Tishman Speyer-led partnership, defaulted on its mortgage and then turned the property over to special servicer, CW Capital, to work out the loan. The Tishman led partnership bought the complex in 2006 for a record $5.4 billion.

“To have an independent analysis of the markets come to this conclusion is an obvious lift for the Tenants Association/Brookfield partnership,” said City Councilman Dan Garodnick, who lives in the complex and represents its residents. “The JP Morgan Report confirms the conversion plan that is being prepared by Brookfield and the tenants association is the best plan for the community and for CW Capital.”

Before any sale or other transaction can take place, CW has said that the ongoing litigation over rents must be settled. In 2007, tenants at the rent-regulated complex sued MetLife and a Tishman Speyer-led investor group, alleging that both companies had illegally deregulated units while receiving tax benefits known as J-51s. MetLife built the complex decades ago and sold it to the Tishman Speyer group. In 2009, the appellate division of the New York State Supreme Court reversed a lower court decision and found in favor of the tenants.

Last February, MetLife said it reached a preliminary settlement with the plaintiffs though there is no evidence in the public record that the deal has been finalized, the JPMorgan report said.

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